I've been in the real estate business for over 15 years now, and I came from a 10 year career in technology. I remember the dawn of the World Wide Web and the Internet before the “modern” browser. If you remember Archie and Gopher, well then you're old, too! By the time I made the switch to real estate, the MLS had already launched online. The thought that Realtors before me used MLS books that looked much like encyclopedia sets blew my mind.
There was a fear among practitioners that the ability to find homes on the Internet was going to turn the industry on its ear and maybe even replace the Realtor. We have reached a point now where more than half of the homes buyers purchase are found online! Yet, the Realtor has survived. No doubt the role of the Realtor has changed drastically with services like Realtor.com and Zillow/Tulia… and even more with the wide-spread use of social media. But if you think the Internet turned the industry on its ear, the potential effect of blockchain and cryptocurrencies may be enough to send Realtors, Lenders, and Title Companies into cold sweats.
What is Blockchain?
You might be thinking, “this Botcoin stuff is all mumbo-jumbo!” I'll admit it, I was pretty skeptical of “digital money” for a long time… and many of my friends would consider me a techie. I don't think we can necessarily announce a clear winner in cryptocurrency… be it Bitcoin, Ethereum, Litecoin or the countless others being traded right now. But when I took a couple of hours to research this stuff a little more, I discovered that the real meat is the technology underneath… the blockchain.
Blockchain is basically a distributed database on a peer-to-peer network. The data is duplicated on multiple computers all over the Internet so there is no single point of failure. Think of it like Napster. Napster didn't survive, but we all know what it did to the music industry… forever changed! Blockchain has the ability to do that across multiple industries. Are there hurdles to overcome? Of course. But there are a lot of advantages to the consumer to move to such a distributed system.
Advantages of Blockchain
A distributed system can reduce costs, speed up the process, and all but eliminate fraud! While the real estate transaction is complex, there are a lot of inefficiencies in the current system… wasted man hours, labor-intensive processes, disjointed data, sloppy and sometimes even dishonest record keeping… the latter of which led to the US housing crash in 2008. Now step outside of America, and consider the rampant corruption in many other countries. The concept of tamper-proof records alone is a game-changer!
While it will take time to switch over the recording of all deeds to a purely digital system, changes to the contract process and the lending process can come much more swiftly. Sounds crazy, but there have already been numerous pilot programs throughout the world… in the US, Sweden, the Republic of Georgia, Estonia, Ukraine, Honduras, Brazil, Ghana, and so on. Make no mistake, changes are coming to the real estate industry!
The New Real Estate Transaction
So what could a real estate transaction of the future look like? Buyers search a blockchain-enabled MLS, short-list properties and conduct due diligence (a complete history of the property is in the database), select a property, conduct inspections and apply for a loan (or perhaps the loan is crowdfunded via a blockchain system), engage in “smart contracts” with the seller (and lender) immediately updating the registry and updating the government… the whole process could take hours instead of days or months, and eliminate most of the “middlemen” required today.
OK… that may be decades away. And while the roles of the Realtor, Lender, and Title Company may change drastically again, the real estate transaction is still daunting for most buyers and sellers. The way our kids buy and sell property will be drastically different than what we've experienced so far, but we can't act out of fear and pretend the change won't come. Now is the time to embrace change and educate ourselves on this thing called blockchain.